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Wholesale prices soar 1.1 percent in March

Inflation at the wholesale level soared in
March at nearly triple the rate that had been expected as the costs
of energy and food both climbed rapidly.

The Labor Department reported Tuesday that wholesale prices rose
by 1.1 percent last month, the largest increase since a 2.6 percent
rise last November, which had been the biggest one-month jump in 33
years. Analysts had been expecting a much more moderate 0.4 percent
rise in wholesale prices for the month.

Core inflation, which excludes energy and food, was better
behaved last month, rising by just 0.2 percent, down from a
worrisome 0.5 percent rise in February.

For the past 12 months, wholesale prices are up by 6.9 percent
and core inflation is up by 2.7 percent, the biggest year-over-year
increase in nearly two years.

The inflation pressures are occurring at a time when the overall
economy is slowing and many analysts believe may have toppled into
a recession. That raises concerns that the country could be facing
another bout of stagflation, the malady that last occurred in the
1970s when economic growth stagnated but inflation kept rising.

Such a development would put the Federal Reserve in a bind. The
central bank has been cutting interest rates in an effort to combat
the current slowdown. However, if inflation pressures keep rising,
it might be forced to stop cutting interest rates for fear that it
would make inflation worse.

For March, energy prices jumped 2.9 percent, the biggest
increase since November. The price of gasoline was up 1.3 percent
while natural gas rose by 4.2 percent. Home heating oil shot up by
13.1 percent and diesel fuel, used to power the nation's trucking
fleet, increased by 15.3 percent.

Analysts believe the economy will be hit with more energy
pressures in coming months, reflecting the fact that crude oil
costs are remaining at record levels above $111 per barrel.

Food costs rose by 1.2 percent in March, reflecting big
increases in the price of vegetables, rice, and beef.

Outside of food and energy, the price of soap and detergents
jumped 2 percent, the biggest gain in more than two years, while
pet food increased by 1.3 percent.

However, the price of new cars dropped by 0.2 percent and the
cost of light trucks was down 0.3 percent, indicating the struggles
that automakers face as a weak economy dampens demand.

The government will report on consumer prices on Wednesday with
the expectation that they rose by 0.3 percent in March.